A strong result for a weak leader

Her economic legacy – whether or not she survives to lead the government to the next election – will be a large structural budget deficit and a sadly diminished inheritance of strong Labor economic management from the Hawke-Keating era.

While the popular debate in the months ahead inevitably will focus on the budget deficit, Gillard’s more egregious failures were in the field of micro-economic management, particularly her re-regulation of industrial relations.

Her prime ministership increasingly has become consumed with her need to rescue the unions from their terminal decline. Saving the unions, it seems, was her historical mission. But plainly it also has became a matter of cold political necessity, as Gillard’s prime ministership has descended into a fire sale of good policy principle in order to maintain the support of the party’s union power brokers. Compared with that, the budget’s structural deficit is almost a misdemeanour.

Gillard inherited a large fiscal deficit and the prospect of deteriorating revenues from
Kevin Rudd
. Her direct contribution to the government’s budgetary woes was, first, her failure to accelerate the decline of the fiscal stimulus when the opportunity arose and then, as her political stocks declined, to add her own layer of new discretionary spending. The problem was not the quality of her major new reforms: national disability insurance and schools reform are long overdue. Rather it is the absence, at least to date, of any offsetting cuts in government spending or special-interest tax breaks.

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What is needed now – and has been needed from early in her prime ministership – is a program of quality cuts that will deliver major savings over the medium term.

Perhaps
Wayne Swan
, who made a display of hurrying back from the caucus meeting to work on the budget, will deliver the requisite cuts. But no one will be holding their breath. Failing governments rarely produce heroic election-year budgets.

The task of fixing the fiscal problem will fall to the next Coalition government which, given
Tony Abbott
’s avoidance of detailed policy commitments, will have a mandate to do little else.

The process will be very similar to the early years of the Howard-Costello fiscal consolidation: the public service numbers will be cut back, departments will be merged, the disability insurance reform (which Abbott supports) will be pushed into the future – to be phased in as the “budget circumstances allow" – and schools reform will be pushed back on to the states, where it will be emasculated by the premiers.

The process of fiscal repair will be neither particularly fair nor efficient, not least because after more than 11 years of the Howard government, the budget’s fat still has a distinctly bluish tinge. As always, it will be the politically powerless who suffer from the Cabinet’s desperate effort to find politically acceptable cuts. Among them will be the disabled and their carers who, on the evidence of the Productivity Commission, are among the most disadvantaged people in society, but also among the easiest to cut because they are last in the queue.

For that Abbott will be held directly responsible, and rightly so. But political historians also will trace the failure back to Gillard’s weakness as a leader. It was her weakness and failure to put in place a proper fiscal consolidation program well ahead of the election year that left her own reforms without a secure place in the budget.